Customer centricity does not replace a good strategy

The myth of customer centricity

Kurt Verweire

By Kurt Verweire

Professor of Strategy

13 June 2017

Source: CxO Magazine(June 2017)

There are various synonyms of customer centricity, such as customer intimacy or total customer experience, which each have a different emphasis. That is quite confusing. What does customer centricity mean? And more importantly: how do you ensure that it is more than a marketing slogan? Kurt Verweire, professor of Strategy at Vlerick Business School, provides the answers.

“You will not find an unequivocal definition. But you can say that customer-centric organisations for specific customer segments create and deliver specific, competitive and profit-generating value propositions. Such organisations make the customer central and align their structure and processes to the customer.”

Short memory

Consideration for the value of customers is nothing new. “But there is frequently a new management hype. In the 1980s it was quality thinking. That came from the principle ‘what does quality mean for the customer?’ Yet people seem to forget concepts quickly. It is surprising how many organisations focus on financial benchmarks and develop a whole series of KPIs for these, but have no response when I ask which of their KPIs measure customer satisfaction. All too often, people spend too much time on financial aspects. I would advise them to give more attention to their customers.”

Customer centricity is a marketing innovation. It does not negate your need to choose. That is strategy.
Kurt Verweire
Associate Professor of Strategy

Everything for everyone

So customer centricity is a good strategic choice, as at the end of the day it is your customers that give you your revenue, and without revenue your story is over. If you cannot satisfy your customers, you are never going to be successful in the long term. That sounds logical, so what goes wrong in practice?

“Customer centricity comes from marketing. Unfortunately it sometimes lacks strategic underpinning. I have noticed that quite a lot of organisations who say they invest in total customer experience actually simply do what customers ask them, instead of being customer centric. They try to do everything for everyone and that is not a recipe for success.”

Two things are of crucial importance if you want to implement customer centricity as a strategic choice: firstly, decide which customers you want to serve; and secondly, make it clear what your value proposition is. “Who do you want to make a difference for, and what do you want to promise them? These are strategic questions that threaten to remain unanswered if you are busy juggling with concepts such as total customer experience or customer centricity.”

Which customers?

“Not every customer belongs in your portfolio. So within one month ING Direct USA said farewell to almost 4000 customers. The American bank was set up to provide quick and efficient online banking services. For questions, the customers could contact a call centre directly, but preferably not three times a day. The service was not for those who needed an extensive consultation or personal advice.”

And there are other examples of businesses that make radical choices: Bank Van Breda only provides asset management to liberal professions and the self-employed, as it knows these customer groups best. Harley-Davidson and Ducati both make motorbikes. But Ducati focuses on sporty motorbikes for racing lovers, looking for top performance and functionality, while Harley-Davidson, with its cruisers and touring motorbikes, primarily focuses on easy riders for whom motorcycling is a question of lifestyle.

Which customer values?

If you are not careful, customer centricity and total customer experience become silo concepts. Then your marketing, production and sales departments are talking over each other's heads. “As an organisation, you must clearly define which sort of customer values you want to deliver. For this purpose, I like to use the model Crawford and Mathews described in ‘The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything’. The book is 15 years old, but is still a key text.”

“Customers decide to make a purchase from you based on the impression of the product, the price, how easy it is to get, the service provided before, during and/or after the purchase, and the feeling they get during personal contact with your business.” According to Crawford and Mathews, organisations with a really successful strategy never try to be the best in all of these five aspects. They choose one aspect in which to excel, a second where they stand out from the competition, and then ensure that they match the market scores with the other three. 

Types of customer centricity

“Your choice of value proposition also has implications for your operational model. Roughly, you can divide these models into three categories: operational excellence, if you want to stand out in terms of price and availability, product leadership if you are looking for the best product and customer intimacy if you want to score on service, flexibility and long-term relationships. Each of the three operational models can be customer centric, but achieve customer centricity in a different way.”

Bottom-line impact

“Once again: it is almost as important to decide who your customers are not, and what you do not do. The wishes of the various customer groups are not always equally compatible. You can either provide an extensive service, or the lowest price. The sharper your definition, the better. A business that has made clear choices can devote its energy to executing its strategy instead of defining it. A good strategy is a prerequisite for a good implementation, and it is the implementation that determines your success.”

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Kurt Verweire

Kurt Verweire

Professor of Management Practice in Strategy